A hedge fund with net asset value of $54 per share currently has a high water mark of $57. Suppose it is January 1, the standard deviation of the fund's annual returns is 40%, and the risk-free rate is 2%. The fund has an incentive fee of 20%. Required: a. What is the value of the annual incentive fee according to the Black-Scholes formula? (Do not round intermediate caiculations. Round your answer to 2 decimal places.) Annual incentive fee b. What would the annual incentive fee be worth if the fund had no high water mark and it earned its incentive fee on its total return? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Annual incentive fee c. What would the annual incentive fee be worth if the fund had no high water mark and it earned its incentive fee on its return in excess of the risk-free rate? (Treat the risk-free rate as a continuously compounded value to maintain consistency with the Black- Scholes formula.) (Do not round intermediate calculations. Round your answer to 2 decimal places.) Annual incentive fee

A hedge fund with net asset value of $54 per share currently has a high water mark of $57. Suppose it is January 1, the standard deviation of the fund's annual returns is 40%, and the risk-free rate is 2%. The fund has an incentive fee of 20%. Required: a. What is the value of the annual incentive fee according to the Black-Scholes formula? (Do not round intermediate caiculations. Round your answer to 2 decimal places.) Annual incentive fee b. What would the annual incentive fee be worth if the fund had no high water mark and it earned its incentive fee on its total return? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Annual incentive fee c. What would the annual incentive fee be worth if the fund had no high water mark and it earned its incentive fee on its return in excess of the risk-free rate? (Treat the risk-free rate as a continuously compounded value to maintain consistency with the Black- Scholes formula.) (Do not round intermediate calculations. Round your answer to 2 decimal places.) Annual incentive fee

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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2. Suppose you are the money manager of a $4.96 million investment fund. The fund consists of four stocks with the following investments and betas: Stock Investment Beta A $ 580,000 1.50 B 800,000 (0.50) C 980,000 1.25 D 2,600,000 0.75 If the market's required rate of return is 11% and the risk-free rate is 5%, what is the fund's required rate of return? Do not round intermediate calculations. Round your answer to two decimal places.
A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term bond fund, and the third is a money market fund that provides a safe return of 4%. The characteristics of the risky funds are as follows: Expected Return Standard Deviation Stock fund (S) 19 % 34 % Bond fund (B) 10 18 The correlation between the fund returns is 0.11. What is the Sharpe ratio of the best feasible CAL?
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Suppose you are the money manager of a $5.08 million investment fund. The fund consists of four stocks with the following investments and betas: Stock Investment Beta $ 440,000 A B C D 0.75 If the market's required rate of return is 10% and the risk-free rate is 6%, what is the fund's required rate of return? Do not round intermediate calculations. Round your answer to two decimal places. 500,000 1,140,000 3,000,000 1.50 (0.50 ) 1.25
A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term bond fund, and the third is a money market fund that provides a safe return of 7%. The characteristics of the risky funds are as follows: Expected Return Standard Deviation Stock fund (S) 23% 28% Bond fund (B) 15 17 The correlation between the fund returns is 0.12. Solve numerically for the proportions of each asset and for the expected return and standard deviation of the optimal risky portfolio. (Do not round intermediate calculations. Write your answers as decimals rounded to 4 places.)
Suppose you are the money manager of a $4.88 million investment fund. The fund consists of four stocks with the following investments and betas: Stock Investment A $ 260,000 B 640,000 с 1,180,000 D 2,800,000 0.75 If the market's required rate of return is 10% and the risk-free rate is 3%, what is the fund's required rate of return? Do not round intermediate calculations. Round your answer to two decimal places. % Beta 1.50 (0.50) 1.25
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A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term bond fund, and the third is a money market fund that provides a safe return of 4%. The characteristics of the risky funds are as follows: Expected Return Stock fund (S) Bond fund (B) The correlation between the fund returns is 0.10. Sharpe ratio Standard Deviation 37% 23 22% 14 What is the Sharpe ratio of the best feasible CAL? Note: Do not round intermediate calculations. Enter your answer as a decimal rounded to 4 places.
You have been given the following return information for a mutual fund, the market index, and the risk-free rate. You also know that the return correlation between the fund and the market is 0.97. Year 2018 Fund -18.80% Market -36.50% Risk-Free 1% 2019 25.10 20.70 6 2020 13.60 13.00 2 2021 2022 7.00 -1.92 8.40 -4.20 6 2 Calculate Jensen's alpha for the fund, as well as its information ratio. Note: Do not round intermediate calculations. Enter the alpha as a percent rounded to 2 decimal places. Round the ratio to 4 decimal places. Jensen's alpha Information ratio Answer is not complete. 3.69 %
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